Bumper crop of corporate earnings will drive market

The direction of Australian shares will be largely driven by corporate earnings this week with a significant part of the market set to report their December-half results.

This week’s reporting season line-up will be the busiest one yet, with 30 companies on the list. On Tuesday activity starts to ramp up, just as talk of US stimulus looks set to dominate global sentiment with US Federal Reserve chair
Janet Yellen
preparing for a grilling at a congressional hearing.

The Australian sharemarket is expected to open 0.7 per cent, 37 points, higher on Monday, futures indicate, after the benchmark S&P/ASX 200 Index closed 35 points higher at 5166 points on ­Friday. The Australian dollar was ­fetching US89.57¢.

Wall Street indexes enjoyed strong gains on Friday as data showed the US Labour Department added fewer jobs than expected in January as a severe cold snap took its toll on businesses. The Dow Jones gained 1.06 per cent to 15,794 and the S&P 500 1.33 per cent to 1797 on Friday.

AFR
AFR

The US unemployment rate in January also hit a five-year low of 6.6 per cent, slightly above the 6.5 per cent that the Federal Reserve said would prompt it to consider raising interest rates from near zero.

The 10-year Treasury yields slipped further to 2.68 per cent, as investor demand for bonds continued to rise despite the Fed’s decision to reduce its bond-buying program for the second time in two months in late January. Yields and prices move in the opposite direction.

A key focus for investors globally this week will be Ms Yellen’s first public speech as fed chair at the semi-annual Humphrey Hawkins testimony on Tuesday. “We do not expect her to deviate much from what [Ben] Bernanke has laid out, or from her recent confirmation testimony," said RBC Capital Markets chief economist James Ashby in a note to clients.

Further comments on the Fed’s intention to keep trimming its $US65 billion in asset purchases is likely to see the US dollar advance and the Australian dollar erase some of last week’s gains, which came after the Reserve Bank of Australia signalled that it won’t cut rates further this year.

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Earnings growth of 13pc expected

Consensus expectations for the local corporate reporting season are for 13 per cent earnings growth this financial year, led by 35 per cent growth in resources profits on the back of a weaker Australian dollar and reduced capex, according to AMP Capital.

Cochlear
is among the first of the big-name companies to report on Tuesday, followed the next day by
Commonwealth Bank of Australia
– the market’s largest company by index weighting.

Also reporting on Wednesday are
CSL
and
carsales.com
, then
Rio Tinto
and
Telstra
on Thursday and
Newcrest Mining
on Friday.

The big four banks have been out of favour with investors since the start of this year, but Market Matters stockbroker and principal Shawn ­Hickman said that could change if CBA’s result beats expectations. CBA shares have fallen 5.5 per cent since the start of January and were trading at $73.52 on ­Friday afternoon.

“If CBA comes out with a good profit margin then all the rest of the banks will get bid up on the back of that," he said.

On the local front,
National Australia Bank
’s business survey for January will also be closely watched on its release this Tuesday along with Thursday’s unemployment report.

“We are expecting the unemployment rate to go up to 5.9 per cent, from 5.8 as the market continues to deteriorate over the course of this year," said NAB Group chief economist Alan Oster, adding that this is why NAB ­forecasts another rate cut in November.

Chinese data on trade and consumer prices is due on Wednesday and is largely expected to show some degree of slowing in the economy.